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annual review 2006/07

1 April 2006 to 31 March 2007

chief ombudsman's report

This annual review describes the work of the Financial Ombudsman Service in the year ended 31 March 2007 - a year that marked the completion of over 500,000 financial disputes since we began operations in April 2000. Of these cases around half have been complaints about mortgage endowments.

Our latest corporate plan, published in January 2007, set out our objectives for the year ahead - and looked forward to a world that will no longer be dominated by mortgage endowment complaints. However, as the numbers of disputes involving mortgage endowments finally reduce - as we have long anticipated would happen - complaints to the ombudsman service about consumer-credit products and services look likely to feature more prominently.

This results from the extension of our remit, from April 2007, to cover all businesses with a standard consumer credit licence. So a significant gap in our otherwise pretty comprehensive remit has finally been closed - a gap which had troubled me from the time that plans for a single ombudsman scheme for financial services were first being put in place. In the first annual review of the Financial Ombudsman Service - even before we had our own formal powers - I highlighted the anomaly of a unified complaints-handling scheme for financial services that could deal with disputes about savings and investments but not with disputes about unsecured loans and credit cards, unless they involved banks or building societies.

This means that, until now, we have had to turn away thousands of consumers with potentially valid complaints about something which they could reasonably call a financial service - but which did not, in fact, fall under our remit. So the statutory extension of our remit to cover consumer credit is not just a technical issue.

Covering 80,000 or so consumer-credit businesses that have never before been under an ombudsman scheme, or needed to have in place formal complaints-handling procedures, gives us the opportunity to re-focus on our core values - and how we can reinforce them in the new environment.

A significant number of these businesses serve members of the community who are likely to have different concerns from many of the consumers we have been used to encountering. For example, mortgage endowment complaints - almost by definition - involve home owners rather than housing association or council tenants. And the disputes we currently handle about investment portfolios and pension funds are a long way from some of the complaints about home credit and debt collection that will figure in our new remit.

This means it is particularly important that our services should be accessible to all consumers. We already deal with a very large cross-section of the community - as our figures on the types of consumer who use the ombudsman service show. We know from experience that the determined middle-classes are sufficiently empowered to deal with - and challenge - bureaucracy. But those less confident about interacting with "officialdom" can feel disadvantaged and dissuaded from pursuing a complaint - to the detriment of the justice of their case. And the needs of minority-language and hard-to-reach communities require particular attention.

We have already done much to try to ensure that the ombudsman service is approachable and easy to use. But barriers of perception remain deeply entrenched. Only recently, during a debate in the House of Commons, Brian Binley MP commented:

In my experience when one mentions the word "ombudsman", people sometimes become frightened: they feel that going to the ombudsman is a pretty heavy judicial process, and they have been warned not to get involved with the law because it is an expensive business. I realise that that is not necessarily true in relation to the ombudsman, but the general feeling remains.

(Hansard, 19 March 2007, Col 631)

Similar issues apply to the businesses newly-covered by the ombudsman service. Many are small traders who have no experience of "regulation" or "compliance" - and who are used to operating without the need for documented complaints-handling procedures. How can we ensure the experience of interacting with our service is not one that these businesses will find daunting or oppressive?

In seeking to ensure that we can identify and serve the distinct needs of this new community, we have been looking at the extent to which our structure, style and process might inhibit some consumers from accessing our service, or might unduly limit the ability of businesses (in particular small businesses) to participate in, and contribute to, the satisfactory resolution of complaints made against them. This work will continue during the forthcoming year under the auspices of the high-level internal taskforce we have set up, which has executive responsibility for prioritising and co-ordinating policies and activities relating to "accessibility" issues.

We are not alone among public bodies in focusing on ways in which we can improve our service to customers. Currently, there is hardly a service-delivery organisation in the UK that is not emphasising its commitment to improving its service standards. Some are relying on new technology and modern systems to provide the promised higher service levels. But while efficiently functioning systems are clearly important, it is the people who work for the organisation who can make all the difference for their customers. This can be the difference between a positive, connected experience - or just a dull and bureaucratic transaction. So we must look both at the procedural aspects of what the ombudsman service offers - and at how we can make real for customers the values to which we are committed.

By necessity, the huge volumes of mortgage endowment complaints which we have had to cope with over the past five years have forced us to concentrate on systems and processes, to drive through the numbers. But my vision for the ombudsman service in the coming years is one that will allow us to connect more personally with the businesses and consumers who constitute our "customers". Although we are a "distance service" - helping to settle complaints over the phone and in writing - we need to respond to the needs of our customers individually and flexibly, taking care to understand what has brought both sides to the point of dispute.

We need to become more visible in communities where there may be doubt or misunderstanding about what we can offer. Playing the part of the honest broker and candid friend, the ombudsman service is ideally placed to reduce the mutual suspicions that often characterise the relationship between consumers and the financial services sector. With the increasing diversity of the consumers and businesses with whom we interact, we can help bring a clearer insight - and better value - to the UK's financial services community and its customers.

Walter Merricks
May 2007

image: Walter Merricks, chief ombudsman

This annual review is published in accordance with paragraph 7 of schedule 17 of the Financial Services and Markets Act 2000.